Students measure value of cryptocurrencies

Open distributed ledger technology–or “cryptocurrencies”–global market capitalization exploded from $20 billion in February of last year to $850 billion at its peak in the beginning of January 2018, forcing the hand of governments, banks and folks around us to start talking about it.

Federal Reserve policy has continued with their plans to ease their monetary stimulus, and they plan to ease more in the coming months. In response, the Dow Jones plunged almost 1600 points Feb. 5–the biggest drop in history during a single trading day. Simultaneously, the crypto market went through a crash of more than 50 percent in capital valuation. The phenomena vindicated the words of some who see no coincidence because Wall Street is adding volatility to the crypto-markets with large buy and sell orders.

The crypto technology allows users to digitize any real world application to communicate with other users at a peer-to-peer level, which means without any intermediary. Distributed ledger technology is innovative because it is not an institution or a platform–like facebook–but a protocol made up of computer code called the ‘blockchain’. It has no central facilitator. The first crypto-network to exist was Bitcoin, which was designed to be a open, borderless money and payment system. Distributive networks are considered an overall more robust form compared to centralized networks, because they are less susceptible to infection and corruption.

After nine long years of unprecedented volatility and the last massive correction, the cryptocurrencies market are still not dead, and even New College students have been exploring the scene. The obvious critique of crypto is its high value volatility, which can make one’s invested money disappear. Why are some students investing in something so volatile?

Student’s perspective on crypto

First off, most students aren’t. According to a Tangent survey, 60 percent of responses said they did not own or want to own any cryptocurrency. Their highest rated reason–at 48 percent–was that they did not know how to buy into crypto or they had not considered buying any because they were afraid of making mistakes. The responses “just don’t care about crypto” took second at 42 percent, popular criticism took third and the sobering reality of losing or knowing somebody who lost money with crypto took fourth, at just under 10 percent.

Though the majority of students said they were not participating in crypto whatsoever, the most popular reason for this position was an admitted lack of confidence, understanding and skill. For those who want to but are not currently participating, 60 percent of them would prefer learning from more experienced New College peers rather than only using the internet as a resource guide. The least popular reason for staying out of the crypto-space was the all-too-real misfortune of losing money.

The Tangent survey allowed respondents to express what crypto is to them in their own words. The answers represent a broad range of feeling and understanding. Most folks feel ambivalent or even upset towards this new innovation. Many responses merely replied “idk.”

Other responses called crypto “meme money” and “a fad that will eventually die a hilarious death.”

Like all emerging technologies, crypto has also been deemed a nefarious use conduit, and many students expressed this concern. Others added that “crypto is something corrupt business people and hackers dabble in”. Another popular chide referred cryptocurrencies as “worthless fool’s gold” and useless “tech bro mumble jumble.”

Some folks see these new investments as complete frauds because the, “crypto-coins are made from thin air for the benefit of early adopting entrepreneurs who sell them to eager buyers.”

Many also noted that the rise in crypto-mining has, “elevated the price of RAM and GPU prices, making PC gaming–and supposedly other high processing computer operations–more expensive.”

Among the 40 percent of responses interested or supportive of crypto, some said “cryptocurrency represents financial freedom, by allowing them to not work horrible jobs that pay garbage wages and don’t respect their workers.” Financial freedom is something which the young generations are wringing their hands about. Savings rates are stagnant or in decline, prices are going up and indebtedness levels are increasing.

A few even praised cryptocurrencies’ detachment from government or centralized entities in general, like banks. They prophesied that “society will naturally flock to distributed network–in all the necessary applications–to disintermediate the centralized actors which have immense authority, are easily corrupted and charge high costs or fees for their service.”

“Why wouldn’t people do that?” they ask.

Many acknowledged that while crypto may be all these positive things, the technology–along with people’s understanding of it–is in its infancy. People are making bad decisions, even if they make a quick buck, because they do not know what they are investing in–a throw back to the Dot Com bubble. Concurrently, much innovation is needed for added scalability and ease of use across all the present crypto assets.

“I think blockchain technology will be the future for major societal applications,” transfer student Emiliano Espinosa told the Tangent, “What one invests now in this space can make large returns if that crypto asset is an application of such necessity–to be determined by the users, society.”

“Open distributed ledger technology appeals to me because of the financial freedom it offers,” Data Science graduate student Michael McCormack said in an interview with the Tangent. “Both owning and participating in the crypto space opens up the opportunity to reject the orthodox nine-to-five jobs. It allows independence with how one chooses to spend their time, and it does not discriminate age. You can have a bossless job, which I think is very attractive in today’s job market, especially for my generation.”

Espinosa had heard of the technology and the emerging coin market for a couple years before participating, “but when a friend of mine told me about opportunities to make significant returns, I began to invest” he said.

According to the Tangent survey, only 23 out of 71 responses claimed they are or were planning to earn cryptocurrency either by mining or working on new or existing crypto-projects.

“This space is on the rise,” McCormack said, “and while there is risk, failure can be overcome by commitment. There are no central actors branded to facilitate the user’s experience. People hold their own private keys for their wallet, which gives them sole ownership. Crypto is a space where folks can learn from their mistakes if they try again, which will only make smarter technology and users for the future. I’m personally interested in working hard and taking risks on the front end for freedom and opportunity in the back end.

“These are the very early days of open blockchain technology,” McCormack continued, “it is entirely possible that the dominant coins in the future will not be those that are now. There are more than 1000 crypto coins, and most are copycats, jokes, or frauds, so it is important to critically determine what real world application a given coin has.

“Additionally, it is incredibly significant how governments will choose to accept crypto in society, and how the crypto community will respond to established authority’s response,” McCormack added.

History has shown that it is hard to fight against technology, so it’s hard to say how government will deal with a tool designed to disrupt centralized databases of any kind. Presently, government interaction with the crypto space causes major price fluctuations, as seen with the recent crypto-crash and recently publicized official position of Chinese and South Korean governments.

“Everything in crypto is moving very fast, including where information on crypto-community comes from. Facebook recently banned targeted crypto ads,” McCormack pointed out. He hopes this prevents a large audience from being bombarded with ‘Get Rich Quick’ ads and begin to tune their ears to the actual software developers.

Advice from peers

Both McCormack and Espinosa cautioned, “don’t invest what you would not be willing to lose. […] But almost just as important, don’t check the price of cryptocurrencies everyday,” McCormack said. “You will likely lose money by day trading or seeking short term gains, and you will be stressed out of your mind. Second, choose an exchange [an on-ramp to convert fiat for crypto and vice versa] that has a good reputation.”

Espinosa agreed that long term investment in sound projects is a much easier, more lucrative–for the non-experienced day-trader–and a less capriciously speculative act. Speculation can clearout anyone, of any capital worth, as history as shown with infamous bubbles.

“Don’t buy anything for investment purposes when the asset or asset market in general is at all time highs,” Espinosa said. “Buy in the middle or lower.” Based off their experience, “once you have skin in the game you become more interested and informed.”

By buying at relatively lower prices and investing money you wouldn’t mind losing, investment in even this new volatile space can feel much more relaxed.

“With the recent boom in demand for cryptocurrencies, many exchanges are backed up and even disallowing new registration,” McCormack said. “Less well known exchanges have more availability, but warrant more caution. Also remember that keeping your crypto on your own software, hardware or paper wallet is always safer than holding it on an exchange.”

“When it comes to understanding more about this new space,” McCormack said, “there are some popular forums like Coin Market Talk, Reddit and Discord, but always be wary of bias–which is admittedly hard to do sometimes. I also encourage people to read the whitepapers of coins they are interested in.”

Real world application gives value by necessity. Bitcoin’s value comes from the inability for any centralized actor to manipulate users’ behavior, the lack of trust between parties needed to make transactions and the stable supply of Bitcoins, a conservative 21 million. Gold and silver have had intrinsic value for thousands of years because they do not decompose, though they do tarnish and dent, unlike cryptocurrencies. The U.S. dollar used to be gold and silver coins, but has been based on our military’s ability to coerce the world onto the petrodollar since 1974. What is valuable is inherently relative to popular use.

Software Engineer, and popular spokesperson for the new technology, Andreas Antonopoulos, is fervently adamant that while there is–in the long view–a current investment arbitrage opportunity in the crypto space, the real value of crypto comes from its usage throughout society. The developers, most famously Bitcoin’s Satoshi Nakamoto–of distributed ledger technology say it necessitates, everyone’s collective ability and best interest to choose what we use wisely, not just for money but for the societal applications for pluralized living. They are opt-in systems. No one determines who can join. Bitcoin and other “altcoins” true to the distributed architecture pose a powerful decision for us all.

Post navigation

The Catalyst is an academic tutorial sponsored by Professor Maria Vesperi. It is developed in the New College Publications Lab using Adobe Photoshop and Adobe InDesign and printed at Sun Coast Press with funds provided by the New College Student Alliance.
The Catalyst is published weekly every Wednesday and distributed throughout the New College of Florida campus.